2012 (5) TMI 365 - AT - Income Tax

Penalty u/s.271(1)(c) - The main thrust of the argument by the Ld. Counsel of the assessee is that penalty is required to be knocked down simply on the basis that AO has failed to apply his mind because notice has been issued without specifying the allegation as AO has simply tick marked the column for concealing the particulars of income or furnishing inaccurate particulars of income in the show cause notice - it is clear that what court observed was that concealment and filing of inaccurate particulars are two different requirements - A plain reading of the above clearly shows that the combined meaning of sec.271(1)(c) read with Explanation 1 is that if assessee has filed inaccurate particulars and such person offers an explanation which is not bona fide or offers no explanation, then penalty is leviable - Noticing that the assessee had given an explanation, vide its letter dated March 22, 2006, giving reasons for claim-ing the interest as a deduction, the Tribunal was of the view that the onus shifted on the Revenue to prove that the explanation offered by the asses-see was false - if a claim is patently wrong, as in the case before us, then merely because such claim has been made through books of accounts cannot be said that assessee has disclosed full and true particulars of income - Decided against the assessee

Summary

Issues Involved:
1. Confirmation of penalty under section 271(1)(c) of the Income Tax Act, 1961.

Detailed Analysis:

1. Confirmation of Penalty Under Section 271(1)(c):

Background:
The case revolves around the confirmation of penalty under section 271(1)(c) for filing inaccurate particulars of income. The assessee had debited a sum of Rs. 99,46,023/- in the profit and loss account under "Sundry Balances Written Off," including debits from four concerns owned by the director/shareholder or their family members, totaling Rs. 70,83,821/-. The assessee claimed these as bad debts, stating that these group concerns had suffered losses and were unable to repay the advances.

Assessment Officer (AO) Findings:
The AO found that these were interest-free advances to family concerns, not for business purposes, and hence not maintainable as bad debts under section 36(1)(vii) read with section 36(2). Consequently, the AO disallowed the claim and initiated penalty proceedings under section 271(1)(c).

Assessee's Response:
The assessee did not appeal the addition and argued that the advances were made in the normal course of business and written off when they became irrecoverable. They contended that disallowance of a claim does not automatically warrant a penalty.

Penalty Proceedings:
The AO issued a show-cause notice for filing inaccurate particulars of income. The AO, referencing various case laws including the Supreme Court decision in UOI v. Dharmendra Textile Processors, levied a minimum penalty of Rs. 23,84,414/-.

CIT(A) Decision:
The CIT(A) confirmed the penalty, stating that the claim was not allowable as bad debt since the amounts were not considered income in earlier years and were not advanced for business purposes. The CIT(A) emphasized that the assessee failed to prove that the advances were incidental to its business or for commercial expediency. The CIT(A) concluded that the claim was patently wrong and inadmissible, amounting to concealing particulars of income and furnishing inaccurate particulars.

Tribunal's Analysis:
The Tribunal examined the arguments and upheld the penalty. Key points included:
- The AO's satisfaction for initiating penalty proceedings was valid.
- The assessee's claim was not bona fide, as the advances were not for business purposes.
- The assessee's failure to appeal the addition indicated the claim's lack of bona fides.
- The Tribunal referenced the Supreme Court's decision in CIT v. Reliance Petro Products Pvt. Ltd., noting that while a bona fide claim, even if untenable, may not attract penalty, a patently wrong claim without any basis does warrant penalty.
- The Tribunal dismissed the argument that non-striking of specific columns in the penalty notice indicated non-application of mind, citing that the AO clearly specified the penalty for filing inaccurate particulars.

Conclusion:
The Tribunal confirmed the penalty under section 271(1)(c), concluding that the assessee furnished inaccurate particulars by claiming inadmissible bad debts. The appeal was dismissed, and the penalty was upheld.